WH Smith sees sales slide but bullish forecasts please City

HIGH street stalwart WH Smith yesterday maintained an upbeat outlook despite a tough consumer backdrop denting sales in both arms of its business.

The company said total group sales fell by 1 per cent in the 18 weeks to 2 July, and slipped 4 per cent on a like-for-like basis in the same period.

The main high street division saw total sales drop by 3 per cent and like-for-like sales by 4 per cent, though the firm said gross margins continue to grow in both arms helped by costs savings.

Elsewhere, the travel business, which operates from more than 530 outlets at airports, train stations and motorway service areas, increased sales by 2 per cent, but once store openings are stripped out, like-for like sales fell by 2 per cent.

Chief executive Kate Swann's strategy recently has been to cut down on products with low margins and intense online competition, such as CDs and DVDs, and focus on core areas of news, magazines, books and stationery - a move that has impacted sales but boosted profits.

With an average transaction value of about 5.50 in its high street business and 3.50 at its travel outlets, the firm is less affected when shoppers tighten their belts.

UK consumers are grappling with rising prices, subdued wages growth, a lack of credit, job insecurity, a stagnant housing market, government austerity measures and fears of interest rate rises. This has led to a recent spate of retail failures.

Despite revealing a dip in sales, WH Smith's figures for the first 18 weeks of the second half were an improvement on the whole of the first half, when travel like-for-like sales were down 3 per cent and high street sales were off by 6 per cent.

The company said it opened seven international units for its travel business, which brings the total number to 47. It assured investors that its financial position was in line with expectations and its balance sheet remained strong.

The group said: "The economic environment remains uncertain and while we continue to be cautious about consumer spending, we remain confident in the outcome for the full year."

Shares in the FTSE 250 firm, which have increased by nearly a quarter over the last year, eased 5.5p or 1.1 per cent to close at 516.5p.

Kate Calvert, retail analyst at Seymour Pierce, said WH Smith was an attractive investment because of its "strong management, defensive qualities, good cashflow and the fact that the management is turning the business into a sustainable growth strategy through Travel".

Arden Partners analyst Nick Bubb said: "Given thestrategic value of the airport shops, the decent dividend yield and the awesome cash generation, the shares still look very attractive, despite the [recent] pick-up."

Ramona Tipnis at brokerage Shore Capital, which reiterated its "buy" recommendation, added: "We are encouraged and keeping forecasts unchanged at this point in time."